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Leonard Green’s Prospect Medical heads back to market: sources

  • Prospect’s Ebitda is about $350 mln: source
  • Company reportedly attempted sale via Morgan Stanley in 2015
  • Leonard Green investment dates to August 2010

More than eight years into its investment, Leonard Green & Partners is exploring the sale of hospital chain Prospect Medical Holdings, according to four sources.

The Los Angeles private equity firm has engaged Barclays to advise on a process, the sources said.

Prospect denied claims of Barclays’s engagement. Representatives of Leonard Green and Barclays did not return requests for comment.

Prospect generates annual revenue of $3 billion, Moody’s said in a January report. One of the sources placed Ebitda at about $350 million.

Led by Chairman and CEO Samuel Lee, Prospect operates 20 acute and behavioral hospitals and a network of more than 165 primary and specialty outpatient clinics throughout Southern California, Connecticut, New Jersey, Pennsylvania, Rhode Island and South Central Texas.

The Los Angeles company through its medical-group unit provides care-management and administrative-support services to independent physician organizations that cover its members via a network of doctors and specialists.

Potential challenges facing Prospect include its large state Medicaid reliance, particularly in California, and the risk of reimbursement cuts, sources noted.

Leonard Green, whose investment in Prospect dates to August 2010, has sought to exit the company on at least one occasion.

It tapped Morgan Stanley in late 2015 to run a sales process, the Wall Street Journal reported at the time. The report suggested that Prospect could fetch as much as $1 billion in a sale.

Leonard Green initially took Prospect private in a deal valued at $363 million including debt.

The anticipated sale of Prospect comes as the broader hospital industry faces immense cost pressures amid a continued shift to lower-cost settings of care outside hospitals.

In turn, private equity in recent years has largely remained net sellers of these companies, opting for more promising areas of growth.

Among the few firms that haven’t shied away from the sector is Apollo Global Management. Earlier this year it merged its portfolio company RCCH Healthcare Partners with LifePoint Health in a $5.6 billion deal.

In other recent activity, TPG in 2017 exited the space through its sale of Iasis Healthcare Corp to Cerberus Capital Management.

Cerberus bought the hospital operator in a reported $2 billion deal through Steward Health Care System, which it has backed since 2010.

Action Item: See Moody’s reports on Prospect: https://bit.ly/2JkMSBG.